1. Projects and Organizational Strategy
Project Management
Projects and Organizational Strategy

2. Strategic Management
Process of assessing “what we are”and deciding and implementing “what we intend to be and how we are going to get there” 2

3. Strategic Planning
Involves determining long term objectives by analyzing the strengths and weaknesses of an organization, studying opportunities and threats in the business environment (SWOT), predicting future trends , and projecting the need for new products and services 3

4. Why Project Managers Need to Understand the Strategic Management Process
provide an overall perspective of the organization focus
provide valuable insights concerning organizational capabilities and resource constraints
see present project in relation to other projects
facilitates reassignment of resources and priorities among projects 4

5. Strategic Management Process
Review/revise mission 1
External environment-- opportunities and threats
Internal environment-- strengths and weaknesses
New goals and objectives 2
Strategic Management Process Includes Four Activities
1. Review and define the organizational mission. 2. Set long-range goals and objectives. 3. Analyze and formulate strategies to reach objectives. 4. Implement strategies through projects.
Portfolio of strategic choices 3
Strategy formulation
Strategy implementation 4
Projects 5

6. Project Screening Process
Project proposal idea
Need strategic fit ROI/payback risk
Data collection and backup
Self evaluation of project by criteria
Abandon
Pursue
Priority team evaluates proposal and reviews portfolio for risk balance
Periodic reassessment of priorities
Return for more information
Reject
Accept
Assign priority Assign resources Assign project manager Evaluate progress
Hold for resources 6

7. GAP STRATEGIES Summary Ideal State Now Vision Mission
Strategic Formulation
Strategic Implementation
Now
PROJECTS 7

8. Identifying projects 8

9. Generic Project Selection Process9

10. Project Selection Models

11. Stretch Scenario
Your boss tells you that you will be the PM for a new project that is a “priority for the company” and “won out” over many other potential projects. You ask what the selection process and criteria were that made this a priority. He glances at you as he says, “a $20 dollar lunch and big favor from the VP of Engineering.”
YOUR THOUGHTS? 11

12. Project Selection
“The proper choice of investment projects is crucial to the long-run survival of every firm.”
Project selection may and frequently does occur without the project management team’s participation 12

13. Criteria for Project Selection Model
1. Realism
2. Capability
3. Flexibility
4. Ease of use
5. Cost
6. Easy computerization

14. Two Basic Project Selection Models
Nonnumeric
Numeric 14

15. Nonnumeric Models
Sacred Cow - project is suggested by a senior and powerful official in the organization; maintained until successfully concluded or until the boss realizes the futility of it
Operating Necessity - the project is required to keep the system running; they are embarked upon with little management decision 15

16. Nonnumeric Models
Competitive Necessity - project is necessary to sustain a competitive position
Product Line Extension - projects are judged on how they fit with current product line, fill a gap, strengthen a weak link, or extend the line in a new desirable way. 16

17. Non Numeric Model
Comparative Benefit Model – a model used to select between diverse projects not easily comparable.
Q-Sorting
Forced Comparison
Peer Review
Murder Board
Profile Modelling 17

18. Q-Sorting
Structured group process. Each person given set of project cards.
Steps:
Each person sorts cards into HIGH or LOW priority–based on criteria
Cards reviewed & MEDIUM-priority projects extracted
HIGHs = HIGH or VERY HIGH. LOWs = LOW or VERY LOW. Now 5 piles
Results from all group members grouped & displayed.
Results surveyed by each person who can shift any card
Results displayed. Opportunity for members to reach consensus.
VERY HIGH first considered for funding
Group processes often deeply influenced by behavioural factors. Q-sorting tries to overcome these factors 18

19. Peer Review
Management want unbiased external assessment of proposed project.
Peer review = send proposal to experts to assess technical merits
Experts submit independent recommendations, or panel
Common in scientific areas particularly government funded R&D project proposals.
Advantages - assessment is expert and objective
However “peer review has long been criticised as a highly subjective approach that is susceptible to distortions, such as bias in favour of an old boy network” 19

20. Forced Comparison
Each department ranks projects they wish to take to selection board,
Each department’s top-ranked project is compared to every other department’s top-ranked project.
Board “selects one project based on their collective opinion as to the overall value of the project obtaining the organisation’s objectives”
As 1 project selected, that department introduces next project which is then compared to top-listed projects of other departments.
Process continues until all projects have been ranked.
Number of projects selected for approval will be based upon the availability of organisational resources

21. Profile Model
Rates projects qualitatively. No numerical assessments are made
Easy to read and quickly understood presentation.
Disadvantage - fails to inform whether a project scoring HIGH in certain criteria outweighs its MEDIUM & LOW scores in other criteria.
"Thus, there is no way to get a single overall score or rating for each project" 21

22. Profile Model Project X has better profile and
is preferred to Project Y 22

23. Murder Board
A panel of people from different parts of organisation whose strongly scrutinise project proposals.
“they should tear it apart and try to show how it is not workable”
Proposer must present & defend project before the panel.
Purpose - “not to punish & humiliate project champion but rather to distinguish between solid and shaky propositions ... the murder board serves the function of ‘reality check’ ”
Usually used in conjunction with other selection methodologies

24. Which “Method” is This?
A group of reviewers challenges the project proponent
Hospital considers addition of new service because of decreased market share
Senior manager says we should introduce a new technology 24

25. A question re: Non-Numeric Selection Methods
What do you think are the strengths and weaknesses of non-numeric selection models? 25

26. Numeric Project Selection Models

27. Numeric Models: Profit/Profitability
Financial considerations are often “the” primary decision criteria for project selection
Three primary methods for determining the projected financial value of projects:
Net present value (NPV) analysis
Return on investment (ROI)
Payback analysis 27

28. Net Present Value Analysis
Net present value (NPV) analysis – calculates the expected net monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time
Positive NPV - should consider selection of the project if financial value is a key criterion
The higher the NPV, the better! 28

29. Net Present Value Example29

30. Return on Investment
Return on investment (ROI) is income divided by investment
ROI = (total discounted benefits - total discounted costs) / discounted costs
The higher the ROI, the better
Many organizations have a required rate of return or minimum acceptable rate of return (MARR) on investment for projects 30

31. Payback Period Analysis
Payback Period - the amount of time it will take to recoup dollars invested in a project
Payback occurs when the cumulative discounted benefits and costs are greater than zero
Shorter the payback period the better 31

32. NPV, ROI, and Payback Analysis Analysis for Project X32

33. NPV, ROI, and Payback Analysis for Project Y33

34. Short Exercise
What are the strengths and weaknesses of using the profitability models for project selection? 34

35. Numeric Models: Scoring
In an attempt to overcome some of the disadvantages of profitability models, particularly their focus on a single decision criterion, a number of evaluation/selection models hat use multiple criteria to evaluate a project have been developed. Such models vary widely in their complexity and information requirements. The examples discussed illustrate some of the different types of numeric scoring models.

36. Unweighted 0–1 Factor Model
A set of relevant factors is selected by management and then usually listed in a preprinted form. One or more raters score the project on each factor, depending on whether or not it qualifies for an individual criterion.
The raters are chosen by senior managers, for the most part from the rolls of senior management.
The criteria for choice are:
(1) a clear understanding of organizational goals
(2) a good knowledge of the firm’s potential project portfolio.
Next slide: The columns are summed, projects with a sufficient number of qualifying factors may be selected.
Advantage: It uses several criteria in the decision process.
Disadvantage: It assumes all criteria are of equal importance and it allows for no gradation of the degree to which a specific project meets the various criteria.

38. Unweighted Factor Scoring Model
X marks in 0-1 scoring model are replaced by numbers, from a 5 point scale.

39. Weighted Factor Scoring Model
When numeric weights reflecting the relative importance of each individual factor are added, we have a weighted factor scoring model. In general, it takes the form
where
Si the total score of the ith project,
Sij the score of the ith project on the jth criterion, and
Wj the weight of the jth criterion.

40. Sample Weighted Factor Scoring Model40

41. Example: P & G practice
Would not consider a project to add a new consumer product or product line:
that cannot be marketed nationally;
that cannot be distributed through mass outlets (grocery stores, drugstores);
that will not generate gross revenues in excess of $—million; for which Procter & Gamble’s potential market share is not at least 50 percent;
and that does not utilize Procter & Gamble’s scientific expertise, manufacturing expertise, advertising expertise, or packaging and distribution expertise.

42. Numeric Modeling Issues
Focus only on the measurable/tangible
Adequacy of specification of model
Subjective – Objective – Subjective dilemma
Problem Formulation
Analytical approach
Interpretation
Deceiving numbers 42